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2014 Supreme(Bom) 274
High Court of Judicature at Bombay
S.C. GUPTE, J.
Pushpanjali Tip Up Pvt. Ltd.
Versus
Renudevi Choudhary & Others
Notice of Motion (Lodging) No. 2150 of 2013 In Suit (Lodging) No. 978 of 2013
Decided On: 05-02-2014
For the Plaintiff:Aspi Chinoy, Senior Advocate with Ankita Singhania i/b. Ashok Dhanuka, Advocates.
For the Defendants:D1, D2, Deepti Padma with Jyoti Ghag i/b. M/s. Thakore Jariwala & Associates, D3, Arif Bookwala, Senior Advocate with M/s. Yash Choksi, Ajay Khandar, Jayant Gaikwad i/b. M/s. Ajay N. Khandar & Co., Advocates.
Headnote:Civil Procedure Code, 1908 - Order XXXIX, Rule 1 - Depositories Act, 1996, Section 12 - S. & E. Board of India Rules, 1996, Reg. 58 - Grant of Advocate Appeared :-interim injunction. - Where “P“ had no knowledge on his part regarding plaintiffs rights to suit shares therefore in absence of any prima facie case, Advocate Appeared :-interim injunction cannot be granted against “P“. - The subject shares were admittedly dematerialized and held in a fungible form. The shares were admittedly transferred by the plaintiff to defendant Nos. 1 and 2 (may be for creating a security) and were recorded in the name of defendant Nos. 1 and 2. Under Section 10 of the Depositories Act, 1996 (“the Act“), whilst defendant Nos. 1 and 2 were the beneficial owners of the shares, defendant Nos. 4 and 5 being the depositories, were deemed to be the registered owners thereof for the purposes of effecting transfer of ownership in the shares on behalf of the beneficial owners. Section 12 of the Act provides for pledge or hypothecation of securities held in a depository.
The Securities and Exchange Board of India has in exercise of the powers under Section 25 of the Depositories Act made the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996. The regulations require the depository to maintain, inter alia, records of all approvals, notices, entries and cancellation of pledge or hypothecation, as the case may be, vide Regulation 38 (1) (e).
The suit pledge was admittedly not created with the previous approval of the depository or intimation from the then beneficial owner of the securities, namely, the plaintiff. There was no compliance with Regulation 58. Naturally, there were no entries in the records of the depository to that effect as a result. Such entries could have been the only evidence of pledge recognized by the Act. This being the position, defendant No. 3 (depository participant) could not be expected to act on any pledge, to which defendant Nos. 1 and 2 (the beneficial owners) were parties. So also, defendant Nos. 4 and 5 (the depositories) could not be prevented from effecting transfer of the shares on behalf the beneficial owners.
Defendant No. 3 had no knowledge of the Advocate Appeared : interim application made on 29 October and sold/transferred the shares on 29 October and 30 October, 2013, before the Court orders were communicated to defendant No. 3. In an appropriate case, it would have been necessary to go deeper into this aspect. But, here Court is convinced that even if Court were to eventually find that there was indeed an attempt to overreach the Court, that does not imply that the plaintiff is therefore entitled to any equitable relief. The plaintiff has not, on his pleadings, made out any case for such relief. On this aspect, it is sufficient for Court to record a prima facie finding that the conduct of defendant No. 3 does not imply any knowledge or acknowledgment on its part of the rights of the plaintiff.
DEPOSITORIES ACT, 1996 - Section 12 - Contract Act, 1872, Section 176 - Notice of pledge. - Provision of Depositories Act, relating to notice of pledge, is in addition of Contract Act.
1 The suit is in respect of shares purportedly pledged by the Plaintiff with Defendant Nos.1 and 2 under loan agreements separately entered into by the Plaintiff with Defendant No.1 and with Defendant No.2. It is the case of the Plaintiff that in spite of recovery of the entire outstanding loan with interest, Defendant Nos.1 and 2 have fraudulently sold or transferred shares held as security in breach of the loan agreements as also in breach of trust.
2 By the present Notice of Motion, the Plaintiff has sought an interim injunction restraining Defendant Nos.1, 2 and 3 (who is the depository participant with whom Defendant Nos.1 and 2 have accounts) from transferring any of the balance shares lying in the depository accounts of Defendant Nos.1 and 2. An interim injunction is also sought against Defendant Nos.4 and 5, who are the depositories in respect of the said shares, from transferring any of the balance shares lying in the DP accounts of Defendant Nos.1 and 2.
3 It appears that since the passing of an ad-interim order on the Notice of Motion, certain further shares have been transferred by Defendant No.3 on behalf of Defendant Nos.1 and 2, whilst some other shares lying in the DP Accounts of Defendant Nos.1 and 2 have been confiscated by Defendant No.3. Having regard to these transactions executed since the filing of the suit, the Plaintiff has amended the plaint as also the present Notice of Motion seeking in addition to the original prayers an interim restraint on Defendant No.3 from making pay-ins of shares sold by Defendant No.3 through the Stock Exchanges and clearing corporations on behalf of Defendant Nos.1 and 2 and directions to Defendant Nos.1 to 3 to deposit in this Court the sums received from sale of shares in excess of the liability owed by the Plaintiff to Defendant Nos.1 and 2.
4 The suit loan agreements, which have been entered into by the Plaintiff separately with Defendant No.1 and Defendant No.2, a mother and daughter duo, are dated 8 March 2013 and 19 March 2013, respectively, for the sums of Rs.3 crores and 2 crores. Shares of Flexituff International Ltd. worth Rs.11.25 crores owned by the Plaintiff were kept as a security with Defendant Nos.1 and 2 towards the loan of the aggregate sum of Rs.5 crores, under the agreements. These agreements have common clauses, the relevant of which are set out below:
“1. The lender agrees to extend and give a Loan to the borrower a sum of Rs.3,00,00,000/- (Rupees Three Crores) provided value of securities provided with the lender is sufficient to give coverage as provided under clause 2 hereafter.
1. The borrower agrees to keep at all times during the currency of the Loan securities to be approved by the lender of 2.25 times the value of loan including interest accrued thereon. For example, Shares worth Rs.6,75,00,000/- will be kept as a security for availing the Loan of Rs.300.00 lacs.
2. Without prejudice to the provisions hereinbefore, Loan facility will be available for a period of 90 days i.e. from March 12, 2013 to June 10, 2013 and the Borrower shall repay the same on due date. The lender may at its absolute discretion agree to renew the facility on a written request received from the borrower.
In the absence of a written consent for renewal, the Borrower shall be bound to repay the entire outstanding amount together with accrued interest thereon on expiry of 90 days from the date of disbursement of the loan. In case maturity falls on a Bank Holiday, the provisions of the Negotiable Instruments Act, 1961, as regards the date of payment shall apply.
3. The Loan shall carry interest @ 18.00% (Eighteen percent) per annum to be payable on monthly basis on reducing balance method i.e. on the outstanding amounts.
4. In consideration of the said facility, the original securities mentioned in Schedule 'A' attached to this Agreement are hereby provided by the borrower in favour of the lender as exclusive charge to the lender towards repayment of the principal amount, i
